While there are several different types of mortgage fraud, one of the most common is the use by an unscrupulous “investor” of a third party buyer to qualify for a mortgage for which the “investor” himself is unable to qualify.

The basics of the scheme are that the third party “buyer” is offered a fee to act as a “buyer” and qualify for a new mortgage (often high ratio) on a property which in reality the buyer has no intention of keeping.  Following qualification by the buyer, registration of the mortgage and transfer of title to buyer’s name, the buyer then transfers title to the “investor”, who assumes the new mortgage on title.

While on the surface this scenario may appear to be fine, keep in mind that the only reason the lender agreed to advance the mortgage funds in the first place was on the strength of the buyer’s credit and qualifications.  It is also extremely likely, and especially so in the case of a high ratio mortgage, that the buyer will have been required in qualifying to execute Statutory Declarations as to the down payment being his own funds, and as to his intention to reside at the property and use it as a principal residence, which is simply not the case.

While qualifying for a mortgage on behalf of another is, under these circumstances, likely fraudulent in and of itself, to complicate matters further, execution of false Statutory Declarations is, under the Criminal Code, tantamount to perjury.

Further, if after assumption by the “investor”, there is a subsequent default under the mortgage and a foreclosure, the initial buyer will be responsible for any deficiency owing to the lender after the foreclosure action, notwithstanding that he was no longer the registered owner at the time of default.

The Real Estate Council of Alberta has published an excellent article on mortgage fraud, which are currently available on it’s website at http://www.reca.ca, which I would strongly recommend that any prospective purchaser read.

Michael C. Dunkley is a Calgary lawyer who has practiced extensively in the area of Real Estate Law for more than 21 years. He may be reached at 291-0006.